T.N.C.Rangarajan, - (1.) THIS appeal relates to the claim of the assessee for relief under Section 89(1) of the Income-tax Act.
(2.) The assessee is an individual. He was working as an officer in the State Bank of India. In the previous year ended 31-3-1983 corresponding to the assessment year 1983-84, the assessee received arrears of salary amounting to Rs. 76,560, which actually related to the period 1-6-1973 to 30-6-1978, on revision of the pay scales. This salary included also the city compensatory allowance and house rent allowance and while paying this amount, the bank had deducted at source the additional provident fund contribution compulsorily payable on the revision of the pay scales as well as the voluntary contribution made by the officer and the income-tax deductible at source. The assessee claimed that in computing the relief available under Section 89(1), the total income of the earlier years had to be revised by taking into account the additional deduction available under Section 80C in respect of the Subscription to the provident fund deducted out of the arrears as well as the additional standard deduction available under Section 16 in respect of the enhanced salary for the respective assessment years. The ITO, however, computed the relief by merely adding the additional salary to the respective assessment years and without making any consequential adjustment in respect of the deductions available under sections 16 or 80C. This was confirmed on appeal on the ground that the computation by the ITO was in conformity with Rule 21A of the Income-tax Rules. In the further appeal, it was contended on behalf of the assessee that the Rule does not preclude the recompilation of the total income for the earlier years and the deductions available under the Act have to be revised as a consequence of the enhancement of the salary. On the other hand, it was contended on behalf of the Revenue that a plain reading of the Rule requires only that the additional salary be added to the total income of the earlier years and no further consequential adjustment was required.
(3.) ON a consideration of the rival submissions, I am of the opinion that the claim of the assessee has to be accept Section 89(1) provides that where, by reason of any receipt of salary being paid in arrears in a previous year, the income is assessed at a higher rate than that at which it would otherwise have been assessed, the Income-tax Officer shall grant such relief as may be prescribed. The prescription is in Rule 21 A. It provides that where any portion of an assessee's salary is received in arrears or in advance, the relief shall be in accordance with the provisions of Sub-rule (2). The relevant portion of that sub-rule states as follows :- 21 A(2)(b) Tax shall be calculated on the total income of the relevant previous year as reduced by the additional salary, as if the total income so reduced were the total income of the assessee, and the amount by which the tax so calculated falls short of the tax on the total income before such reduction shall, for the purpose of Clause (a) be taken to be the tax on the additional salary under this clause. JUDGEMENT_7862_TLIT0_19910.htm (d) Where the additional salary relates to more than one previous year, - (i) the previous years to which the additional salary relates and the amount relating to each such previous year shall first be ascertained ; (ii) tax shall, than, be calculated on the total income of each such previous year as increased by the amount relating to such previous year ascertained under Sub-clause (i), as if the total income so increased were the total income of that previous year, and the amount by which the aggregate of tax in respect of the aforesaid previous years as calculated under Sub-clause (ii) exceeds the aggregate amount of tax payable by the assessee in respect of the total income of the said previous years shall, for the purposes of Clause (a), be taken to be the aggregate tax on the additional salary under this clause. The case of the Revenue is that this Rule merely requires that the additional salary should be reduced from the current assessment year and added to the earlier year and no further adjustment is required. But Sub-rule (d) requires that tax shall be calculated on the total income of each of the previous years as increased by the relevant additional salary. "Total income" has been defined in Section 2(45) to mean the total amount of income as computed in accordance with the provisions of the Act. It follows that the addition of the salary income to the earlier previous year would not end the exercise. It is well-settled that "if you are bidden to treat an imaginary state of affairs as real, you must, surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs". (East End Dwellings Co. Ltd. v. Finsbury Borough Council 1952 AC 109). In the present case, since the additional salary is considered to be part of the total income of the previous year, the total income has to be recomputed. The addition actually results in a compulsory deduction of provident fund as well as enhancement of the deduction under Section 16. When the rule requires that tax is to be calculated after making the addition to the total income, the exercise cannot be completed without making the consequential changes which result in additional deduction under Sections 16 and 80C. Therefore, I accept the contention of the assessee that the total income of the earlier previous years must be recomputed in accordance with law after adding the additional salary attributable to those previous years and the tax payable ascertained thereon. The resultant relief under Section 89(1) will the amount given in the working sheet of the assessee at Rs. 10,390 instead of Rs. 6,542 determined by the ITO. He is, therefore, directed to substitute Rs. 10,390 and grant relief accordingly. The appeal is allowed.;